April 2009

Before yesterday's moderate selloff, we were looking for the Indoos to complete a minor rally pattern to ____, a Hidden Pivot target. The target remains valid because the point 'C' of the pattern, 7751, is very much intact. Moreover, we might also infer that the finishing stroke to ____ is likely, since the midpoint resistance associated with that number, 8047, was demolished when the Dow shot up to 8113 on Monday

I don't want to get hung up on the bullish Goldman target at $143, since we had Monday's 131.27 high in the stock nailed within 53 cents. That could prove to be an important top -- not only for Goldman shares, but for the market as a whole -- and so we should respect that possibility.  Other technical factors hinting that the stock market is extremely vulnerable include very bullish sentiment readings and an historically low Rydex bull/bear ratio of 0.74.

Our option position is showing a theoretical profit of $1,180, but there is another $1070 of potential gains over the next two days if the stock ends the week at 115. The profit would even higher -- around $2680 -- with GS at $120. You can exit between now and Friday, but officially we'll close out the position just before the April calls expire. There is no reason to try and squeeze the last dime from this trade, but keep in mind that a haphazard exit could cost you $300 or more of otherwise easy gains. A well-managed exit implies exiting both sides of each calendar spread at the same time, about midway between the bid and offer.

No sooner do we crown Goldman Sachs our Bear Rally King than...THWUMP!...the stock gets socked with a $15 loss,  its worst day in recent memory. There were some lurid stories on the Web to help turn yesterday's selloff into a gang-bang, including one at SeekingAlpha.com that wondered aloud whether Goldman deserved to share in AIG's bailout booty if, as is rumored, Goldman made a ton of money shorting AIG stock before the insurance firm collapsed.                   While Goldman reported better-than-expected earnings of $1.8 billion for the first quarter, much of it attributed to trading in fixed-incomes, the firm threw cold water on revelers yesterday by calling the strong numbers unsustainable. A concurring opinion from Standard & Poor's, whose guesswork in recent years has made the CIA look positively oracular in comparison, helped ratchet up the selling when the ratings firm wrote: "Coupled with persistent weak economic conditions and capital markets turmoil, we believe it would be premature to conclude that a sustained turnaround" in Goldman's performance is under way.  Insanity Does a '180  Funny how investors couldn't get enough Goldman stock just a day earlier. They goosed it up $7 in just a few hours, capping a $30 surge that had begun from $100 a week earlier. After Monday's close we were expecting the stock to go even higher in the days ahead, to at least $143. Now, even under the best of circumstances, it's going to take longer than we might have predicted. So what might that portend for the broad averages? We think it will slow their ascent, although we doubt that the bear rally that has pushed the Dow up by more than 1,600 points since early March is ready to die. More likely is that stocks will recoup yesterday's moderate

Recommended reading: Goldman Sachs Backlash is Picking Up Steam

I gather from the chat room discussion yesterday that tous le monde took the recommended trade, buying eight ______ puts for an average 0.58. There is no urgency about spreading off these little pups, nor should we get nervous if Microcrap tacks higher on rumors that Windows 7 is not quite as crappy as Vista. In any event, our goal will be to leg into vertical put spreads if the stock falls hard in the coming weeks; or if it falls only moderately

I mentioned elsewhere today that we might have to adjust our sights upward for this this vehicle if Goldman Sachs shares are about to shoot up 10 percent, to $140. I doubt that the Dow would keep pace, implying a move up to around 8900, but there is a Hidden Pivot resistance at ____ that can serve as a minimum upside objective if the Goldman-inspired wilding spree catches on.

I usually try to comment on trading vehicles that have been garnering their fair share of discussion in the chat room, but there isn't much to say about June Crude right now. It has been trending higher since mid-February, and there is a rally target of sorts at 59.92 that can serve as a minimum upside objective.  While that would eclipse an important peak  at 59.66 recorded at the very beginning of 2009, it would fall shy of a second at 61.33 whose defeat is needed to create a bullish impulse leg on the daily chart.  Bottom line, Crude's tedious noodling since Christmas has the look of distribution rather than consolidation. A pop to 61.34 would radically change the picture, but for the time being, and unless 59.66 is exceeded to the upside,  the official bear market target will be 30.85, or 26.17 if any lower.

Yesterday's rally was constructive, since it exceeded a small peak on the hourly chart at 899.50 recorded on the way down last week. However, because Gold has squandered numerous opportunities of this sort in recent weeks, we'll set a high bar to tell us whether the uptrend begun last Monday is capable of renewing itself with each bullish thrust.